Supplying Society with Natural Resources

Mining is virtually as old as humanity. Supplying basic materials for shelter, tools, and weapons and supporting energy, food, and high-technology industries, it is directly linked to quality of life, which in turn is linked to affluence. In the 21st century affluence will continue to grow faster than population, resulting in unprecedented growth in demand for basic mineral products and taxing the supply of major mineral commodities such as copper and iron.

Overview

The middle of the 20th century marked a paradigm shift in attitudes about the environment and natural resource development. The 1950s and 1960s saw extraordinary economic growth, the publication of a provocative book, Silent Spring by Rachel Carson (1962), and landmark legislation that led to the formation of the US Environmental Protection Agency in 1970. The result was a tectonic shift in mining exploration and development, which until then had been driven by science and engineering since the first mining “textbook,” De Re Metallica (Agricola 1556).

Environmental and social considerations grew in importance through the second half of the 20th century and beyond. According to Glausiusz (2007), Silent Spring heralded the beginning of the environmental movement and with it a slow, galvanizing realization that

the world is finite,

the “solution to pollution is dilution” is no longer an acceptable mantra, and

the means used by society to ensure quality of life, and even adequate food, domatter if quality of life includes, as Carson posited, a bird’s song.

Costs attributed to mineral production transcended the tangible to include the intangible and then extended to mammoth issues such as climate change and biodiversity. The extension of these concepts to a global scale introduces geographical and temporal ambiguity that requires at least a modicum of shared beliefs and values, represented by the term cultural globalization (Osterhammel and Petersson 2009). Many of the inputs to these matters of great debate are global in influence but subject to national laws, making them “messy” problems (Metlay and Sarewitz 2012), which we discuss below.

Mining and Minerals in the Economy

Mining can be considered the beginning of the supply chain for critical components of the US economy: value is added as the mineral materials move from the mine to manufactured products, and this downstream manufacturing creates more jobs and generates more tax revenue than mining alone. Moreover, unlike mining, which is linked to specific geology, manufacturing is geographically diverse, located near workforces, infrastructure, and markets.

The Relationship Between Population and Affluence

With a population of over 300 million and an average GDP per capita of nearly $52,000 per year (World Bank 2014), the US economy reflects the role of minerals in an affluent, populous country. The footprint of mines in such countries affects a greater number of stakeholders, although the direct role of mining in developing economies may appear more significant. This is because a developed economy enjoys a significant multiplier effect; in the United States, the value of mined nonfuel products in the overall economy is $76.5 billion (Figure 1). After a greater than ninefold multiplier from the value of mined products to their processed derivatives, the direct impact on the US economy from mineral products is approximately $704 billion. For example, mined clay can be used to manufacture bricks, which in turn are used to build houses. Mined products also provide energy for the greater economy—56 percent of US electricity is derived from coal and uranium (EIA 2013).

Figure 1

This multiplier effect explains why the economic impact of mining appears to diminish with greater population and affluence: it increasingly blurs into the supply chain. Thus in 2011, the ratio of the entire US manufacturing sector to the mining sector was 52 to 1 (BEA 2013), whereas in Australia, a much less populous but similarly affluent country with a comparable mining industry, the ratio is 1 to 1 (DFAT 2013).

The Relationship Between Consumption and Affluence

In addition to population impacts, consumption of fuel and other resources increases with affluence—and global affluence is growing faster than population. Over the next generation (2010–2040), global affluence as represented by average annual GDP per capita will increase from $10,000 to $26,000, a 160 percent increase. Over the same period the world’s population will increase by 14 percent, from 6.9 billion to 9.0 billion (UN 2013).

Menzie and colleagues (2005) observed that, while mineral consumption is very low at minimal income levels, it grows as income grows, slowly at first but then rapidly once it exceeds a certain income threshold. The relation between affluence and per capita mineral consumption (demand) also varies with the mineral commodity and its end use. For example, the demand for iron (steel) and copper rises faster at lower income levels than the demand for nickel (specialty steels), titanium dioxide (pigments and paints), borates (glass), and diamonds (Figure 2).

Figure 2

Iron and copper are two of the most critical building blocks of industrialization. For more than two generations there was balance between supply and demand, as their real prices decreased systematically from 1960 to 2003. Then the market failed for these and other metals, and prices have since surged to historic highs in both commodities (Figure 3).

Figure 3

The case of copper illustrates the challenge of supplying the mineral materials needed for growth. China’s economic growth is responsible for the majority of global minerals consumption (Menzie 2012), and between 2008 and 2025 the country’s annual GDP per capita is expected to rise from $8,000 to $18,000. The Chinese population will also increase during that period, from 1.32 billion to 1.45 billion (NBSC 2011; UN 2013). Because copper consumption can be directly linked to affluence, these projections will translate to an increase in annual consumption of copper in China from approximately 4 kg to just over 9 kg per person (Rio Tinto 2012), or an increase in the country’s total annual copper consumption from 5 million to 13 million tonnes (e.g., Menzie et al. 2005; World Bank Group 2006).1This anticipated growth in demand is equivalent to seven times the annual output of the Escondida Mine in Chile, the largest copper producer in the world.

The situation is similar for iron ore demand as China and India build out their infrastructure. There is a lag of up to 20 years from initial capital investment to commercial production from a new mine (Davis and Samis 2006). Thus when the supply-demand balance is broken, prices can rise sharply as it takes substantial time to raise production to balance demand.

The Mining Industry pre–Silent Spring

Early humans extracted raw materials from the earth for tools, weapons, and shelter. Coal, for example, was known and used for millennia in various capacities, although large-scale mining of it for metallurgical and thermal purposes probably began with the Romans. There was widespread trade of coal in the northwest Roman Empire (Smith 1997)—and given the nature of Roman occupation, one can imagine many social issues surrounding their coal mines.

The first known scientific accounts of geology and metals mining were published by Georgius Agricola in 1556 (Wolf 1959). Mining practices and technologies evolved systematically from this first treatise on mining principles to meet exponential growth in demand for mineral materials. The unique nature of mining (i.e., the minerals are dependent on geology) soon prompted the early economies to look far and wide for ores (an early illustration of “going global”). The forces of conquest and colonial power led to exploitation of gold, silver, copper, gems, and other mineral products across much of the world; for example, the Spanish conquistadors were bent on harvesting gold and silver from Latin America beginning in the 1500s.

Although exploitation did not cease, the first half of the 20th century was witness to a “corporate” approach. This period saw the emergence of many global mining enterprises, and large corporations such as Anglo-American, Broken Hill Proprietary (now BHP Billiton), Rio Tinto, Anaconda Copper, and Kennecott Copper grew from individual mines to conglomerates.

During this pre–Silent Spring era, mining progressed from a necessity for survival to international commerce. The progress, dramatic and substantial, built on centuries of discovery and technological development. The focus of mine finders and mine builders was on science, engineering, markets, economics, and the commercial bottom line; the literature contains few accounts of mine developments blocked by protests or regulators during this period.

The Mining Industry post–Silent Spring

The publication of Silent Spring and other events of the mid-20th century triggered an evolution in beliefs and values that broadly affected lifestyles and practices, including the production of mineral materials. Carson’s book redefined the “costs” of supplying the inputs for quality of life to encompass complex social and political challenges. Passions were stirred. The resulting discussion around the insecticide DDT, the focus of Carson’s book, spawned court battles and decades of controversy. In 2010 Discover magazine ranked Silent Spring number 16 on its list of the 25 most important science books ever published.

Accelerating Change: The Role of Social License

The societal rate of change is generational (Carlson 2010), but social license can accelerate the impact of changing beliefs and values. These days nearly instantaneous communication through global news outlets, the Internet, and social media magnify the potential effect of stakeholders on mining projects through social license.

Social license is secured outside formal permitting and regulatory processes and is sustained through continuous efforts to manage social capital and trust-based relationships (Yates and Horwath 2013). It embodies beliefs and values manifested both informally through socially acceptable practices and formally through political processes that result in new or amended rules and regulations.

In their seminal paper on this topic, Thomson and Boutilier (2011) state that social license manifests “a community’s perceptions of the acceptability of a company and its local operations.” It is increasingly recognized—by stakeholders, communities, corporations, and governments—as a prerequisite for development and a requirement for continued operation.

A Global Resource Model with Social Conflict

The relationship between technology and society has changed fundamentally since the mid-20th century (Metlay 2012, p. 3):

Where once choices among technological alternatives were made by a narrow set of parties, either entrepreneurs or government officials, those decisions increasingly became subject to public scrutiny and influence. Where once the consequences of a technology were seen as largely localized, impacts came to be understood as more wide-ranging—geographically and temporally. Where once a particular technology could be assessed independently, its interaction with others now needed to be considered . . . .

In a lecture titled “Humanity’s Greatest Risk Is Risk Avoidance,”Lawrence Cathles (2011) asserted that society potentially has the technological and innovative capacity to supply a world population of 10.5 billion in 2100 with sufficient mineral resources to achieve affluence equivalent to that of the European Union. His model began with energy, because with enough energy most engineering problems can be solved (Cathles 2011).

He argued, however, that risk aversion tends to impede the use of technologies, and cited examples of risk-averse objections: wind turbines kill birds, coal emits greenhouse gases, nuclear has no adequate plan for waste disposal, and hydroelectric dams disrupt fisheries. There is a long history of innovation that suggests potential mitigation of each of the above risks, but innovations take time to develop and deploy, and often come with their own risks. Thus the limiting factor to innovation in support of sustainability appears to be risk avoidance rather than technological challenge.

Implications of Globalization

The World Values Survey is a global research project that explores values, beliefs, and their political impact. It has been conducted since 1981 by an international network of social scientists using complex questionnaires in nearly 100 countries, representing nearly 90 percent of the world’s population (Carlson 2010). The survey clearly reveals that value systems vary significantly around the world. Differences at the national level are profound, but they become even more complex at the level where social license operates: provinces, regions, communities, and tribes.

Thus, although the locations of the world’s mineral deposits depend on geology and not political or cultural boundaries, the diversity of global beliefs and values creates a special challenge in developing mineral resources.

A Special Class of Problem: The “Messy” Problem

Supplying mineral resources for a sustaining population in a socially and environmentally responsible way constitutes a special class of problem that is truly global, highly uncertain with respect to options and outcomes, and subject to considerable controversy. It thus appears to meet the definition of a messy problem (Metlay and Sarewitz 2012, p. 6):

One class of problems, termed messy, wicked, or ill-structured, is characterized by (1) a high degree of uncertainty about how options are linked to outcomes and (2) substantial controversy over trade-offs among values.

This situation is not unique to the future of mining. Global climate change, hydraulic fracturing, nuclear energy, biodiversity, endemic poverty, and world peace all present messy problems.

Changing Definition of Costs

Rachel Carson’s book and the resulting tidal shifts in thinking about the value of the environment introduced new cost components that now factor into almost all economic calculations. The struggle for a working model for modern resource development is to capture and incorporate environmental and social costs while maintaining the benefits of development.

Because environmental and social elements do not lend themselves to quantification, innovative holistic approaches to costing have emerged. In standard accounting practices the bottom line is revenue minus expenses. Environmentalists and social justice advocates introduced the concept of full cost accounting, adding two more lines below the profit bottom line, people and planet, and in 1994 John Elkington (1997) coined the term triple bottom line (TBL). The TBL approach recognizes economic, social, and environmental contributions to the bottom line and is a way to address the messy problem.

Strategic Minerals: An Example of Global Demand and Local Impact

The 17 rare earth elements (REEs) on the periodic table have special and useful chemical properties but only rarely occur in mineral concentrations suitable for mining. They represent the beginning of an important supply chain and are a clear example of global demand and local impact. Used in nearly all electronic, clean energy, electric transport, and military technologies, they are critical for national defense, renewable energy, and virtually all high-tech innovation (Paul and Campbell 2011).

China controls 97 percent of the world supply of REEs (Bleiwas and Gambogi 2013, p. 6), but production from two REE deposits in the United States would decrease dependence on China for these minerals. The Mountain Pass mine in California is located 15 miles from Primm, Nevada (population 1,132), and is undergoing a major expansion, and the Bear Lodge Project, 6 miles from Sundance, Wyoming (population 1,213), is under consideration for development.2 The physical footprint of each is on the order of hundreds of acres.

This example of national need and local impact illustrates the type of thought required for dealing with messy problems pertaining to sustainability. Production of REEs from two mineral deposits in rural America near communities with just over a thousand people may affect the country’s high-tech innovation, clean energy and transport, and national defense technology. How should society balance the economic, environmental, and social costs and benefits of this potential new REE production? Who should sit at the table to decide?

Evolution and Effects of Globalization

We believe that globalization drives the mining industry to a greater extent than many other sectors. It affects supply-demand balances (and, implicitly, commodity prices) as well as rules and regulations governing production. Thomas L. Friedman (2005) divides the history of globalization into three periods:

1492–1800: globalization of countries

1800–2000: globalization of companies

2000–present: globalization of individuals

In this discussion we interpret the third phase as exemplified by the concept of social license. The intersection of the globalization of companies and of individuals in the mining industry is evident in the following recent developments:

In 1999 nine of the largest mining and metals companies launched the Global Mining Initiative (GMI) to address the role of mining in global sustainability; and in 2001 the International Council of Mining and Metals (ICMM) was formed to carry out GMI recommendations. ICMM member companies operate their mines and mineral projects according to Council standards, which are described as meeting or exceeding promulgated rules and regulations.

Insightful and effective global guidelines continue to be developed, such as the ISO 14000 and 26000 series for auditable environmental and social processes, and the Equator Principles, which provide an environmental and social risk framework that has been adopted by financial institutions covering over 70 percent of the international project finance debt in emerging nations.

The effectiveness of the ICMM standards, ISO certifications, and Equator Principles, all driven by global commercial enterprises to address social, environmental, and political issues, is a work in progress. But because of its fundamental importance, mining must continue to adopt practices consistent with the diversity and complexity of evolving global beliefs and values. Increasingly, social and political systems affected by cultural globalization will serve as the fulcrum for the supply-demand balance for mineral materials.

In this and future generations, technical and financial expertise will be employed through an ever more complex social-political filter in a global arena governed by national laws and private sector–based guidelines. Prices of critical mineral materials will record the efficiency (or lack thereof) of transitioning from the globalization of companies to the globalization of individuals as the market supports the world’s population three generations hence.

Conclusions

Supplying society with mineral and other natural resources presents a number of enigmas:

Processes that affect global issues are governed by national laws and regulations.

Risk avoidance impedes the technological innovation needed to support projected population growth.

Social license gives small groups influence over natural resource development that may have broad detrimental and/or beneficial impacts.

People in developed versus emerging economies may differently value the relative importance of structural steel (for example) versus a bird’s song.

The consumption of mined materials is directly proportional to population and affluence. Because affluence is growing faster than population, it is not sufficient to view consumption in terms of population growth alone. The demand for some metals, particularly iron and copper, increases sharply in emerging economies, as in the United States in the early 1900s and China and India today (and tomorrow).

Mining is the beginning of the supply chain for manufactured goods, highlighting the importance of mineral materials as necessities for infrastructure and consumer goods. Silent Spring marked a monumental awakening to society’s impact on the world and introduced the value of a bird’s song to the “calculation” of quality of life. Since then the challenge to support quality of life has moved from a solely economic exercise to include environmental and social factors. This thinking has transformed decision making, requiring consideration of a new triple bottom line.

National laws and regulations evolve slowly, reflecting the changing beliefs and values of society. But the power of social license makes it possible to express those beliefs and values more quickly. Mineral resource production is thus subject to this paradox: a project can comply with national laws and regulations but never operate because of the denial of social license.

Traditional mining has evolved since Agricola to serve society over numerous generations. In contrast, society has had less than two generations to understand the implications of Silent Spring on the redefinition of costs, and will have a mere three generations to adapt before the world reaches its projected peak population of 10.5 billion in 2100.

Mining and other industries continue to evolve, but it remains very difficult to value a bird’s song on a balance sheet.

Authors’ Recommendations

Government, industry, and private sector leaders tasked with delivering mineral resources into the supply chain can meet the challenges described above by adopting the tactics used for messy problems:disaggregate or redefine the problem into small problems that lend themselves to simpler solutions with the potential to attract a broad base of constituencies; work systematically and patiently toward the solution of the larger problem through small successes (Metlay and Sarewitz 2012); and, in this instance, remind stakeholders of the relevance of mineral resources and of the multiplied benefits of downstream manufacturing. We also suggest the following steps:

Link mined products to everyday consumption. Do the math. For example, how many copper mines are necessary to serve China’s demand?

Feed the supply chain. Define mining as the beginning of the supply chain for consumable products, broadening its relevance to a global audience.

Highlight the link to national defense and more. Tell the rare earths story. The value of the mined commodity pales next to downstream strategic and high-tech implications.

Consider who gains or suffers. Affluent populations are more likely to value a bird’s song over a new mine to produce iron; this is less true of populations in developing countries that need structural steel to build their economies. This difference can lead to inequities when rules and regulations significantly restrain production and result in significant price increases for much-needed structural steel.

Finally, bear in mind that society has only three generations to confront this messy problem before the world reaches its projected peak population.

Carlson JD. 2010. Generational Value Change, Cultural and International Relations: The World Values Survey and Political “Generation Gaps.” University of California, Merced. From Selected Works of Jon D. Carlson. Available at http://works.bepress.com/jondcarlson/7.

UN [United Nations]. 2013. World Population Prospects: The 2012 Revision. United Nations Department of Economic and Social Affairs, Population Division. Interactive data: Medium variant estimate. Accessed February 11, 2014. Available at http://esa.un.org/unpd/wpp/index.htm.

Yates BF, Horwath CL. 2013. Social license to operate: How to get it, and how to keep it. Working paper, Pacific Energy Summit, April 2–4, Vancouver.

FOOTNOTES

1 A mining industry source is cited for these projections of copper consumption in China, and other mining companies have reported corroborating figures. We are not able to verify these data from independent sources, although some documents from public sources, such as the UN and World Bank, do show strong projected growth in Chinese copper consumption that may be extrapolated to support these estimates.

2Information about these plans is in the quarterly SEC reports of the responsible companies, Molycorp Inc. (for the Mountain Pass mine; June 2013) and Rare Element Resources Ltd. (for the Bear Lodge Project; September 2012), available through Edgar–Securities and Exchange Commission (http://sec.gov/edgar.shtml).

About the Author:Leigh W. Freeman is a principal and general manager of Downing Teal Inc. R. Patrick Highsmith is the principal of Resource Advisory Corporation.